Kevin M. Murphy

Dynamic Bundling of Goods and Bads in Media Markets
Date Posted:Mon, 09 Aug 2021 06:34:43 -0500
We develop a framework to study dynamic media consumption decisions and their tensions with the interests of advertiser-supported media. The model captures the core characteristics of how commercial media markets operate and audiences form. Media trade utility-raising goods (programs, information, and services) with audiences in exchange for utility-decreasing bads (exposure to advertisements), and goods are otherwise free to the audience except for their opportunity cost of time. Goods and bads are dynamically arranged, and as such traded in an intertemporal bundle. No monetary transfers take place between media and audiences, and this barter exchange is not contractually sustained.

REVISION: A Theory of Intergenerational Mobility
Date Posted:Thu, 22 Mar 2018 11:49:06 -0500
We study the link between market forces, cross-sectional inequality, and intergenerational mobility. Emphasizing complementarities in the production of human capital, we show that wealthy parents invest, on average, more in their offspring than poorer ones. As a result, economic status persists across generations even in a world with perfect capital markets and absent differences in innate ability. In fact, under certain conditions, successive generations of the same family may cease to regress towards the mean. We also consider how short- and long-run mobility are affected by changes in the returns to human capital.

A Theory of Bundling Advertisements in Media Markets
Date Posted:Tue, 03 Jan 2017 11:58:19 -0600
Watching TV and other forms of media consumption represent, after sleeping and working, the main activity that adults perform in developed countries. We present a dynamic theory of commercial broadcasting where the media trade utility-raising goods (programs, information, and services) with audiences in exchange for their exposure to advertisements (utility-decreasing bads), and where goods are otherwise free to the audience except for their opportunity cost of time. Goods and bads are dynamically arranged, and as such traded in an intertemporal bundle. No monetary transfers take place between media and audiences, and this barter exchange is not contractually sustained. We study this dynamic problem in a model that captures the central characteristics of how commercial media markets operate. The model is rich enough to account for a variety of disparate evidence in television, radio, print media and the web.

A Theory of Intergenerational Mobility
Date Posted:Tue, 01 Sep 2015 09:40:49 -0500
We study the link between market forces, cross-sectional inequality, and intergenerational mobility. Emphasizing complementarities in the production of human capital, we show that wealthy parents invest, on average, more in their offspring than poorer ones. As a result, economic status persists across generations even in a world with perfect capital markets and absent differences in innate ability. In fact, under certain conditions, successive generations of the same family may cease to regress towards the mean. We also consider how short- and long-run mobility are affected by changes in the returns to human capital.

REVISION: A Theory of Intergenerational Mobility
Date Posted:Tue, 01 Sep 2015 00:40:49 -0500
We develop a model of intergenerational resource transmission that emphasizes the link between cross-sectional inequality and intergenerational mobility. By drawing on first principles of human capital theory, we derive several novel results. In particular, we show that, even in a world with perfect capital markets and without differences in innate ability, wealthy parents invest, on average, more in their offspring than poorer ones. As a result, persistence of economic status is higher at the top of the income distribution than in the middle. Successive generations of the same family may even cease to regress towards the mean. Moreover, we demonstrate that government interventions intended to ameliorate inequality may in fact lower intergenerational mobility — even when they do not directly favor the rich. Lastly, we consider how mobility is affected by changes in the marketplace.

The Manipulation of Children's Preferences, Old Age Support, and Investment in Children's Human Capital
Date Posted:Fri, 17 Oct 2014 20:37:09 -0500
We consider the link between parents' influence over the preferences of children, parental investments in children's human capital, and children's support of elderly parents. It may pay for parents to spend resources to "manipulate" children's preferences in order to induce them to support their parents in old age. Since parents invest more in children when they expect greater support, manipulation of child preferences may end up helping children and parents. A new result, that we call the "Rotten Parent Theorem," demonstrates that if children are altruistic, then even selfish parents will make the optimal investment in kids' human capital.

New: The Manipulation of Children's Preferences, Old Age Support, and Investment in Children's Human Capital
Date Posted:Fri, 17 Oct 2014 11:37:09 -0500
We consider the link between parents' influence over the preferences of children, parental investments in children's human capital, and children's support of elderly parents. It may pay for parents to spend resources to "manipulate" children's preferences in order to induce them to support their parents in old age. Since parents invest more in children when they expect greater support, manipulation of child preferences may end up helping children and parents. A new result, that we call the "Rotten Parent Theorem," demonstrates that if children are altruistic, then even selfish parents will make the optimal investment in kids' human capital.

Activating Actavis with a More Complete Model
Date Posted:Fri, 31 Jan 2014 17:37:56 -0600
In FTC v. Actavis, Inc. the Supreme Court asked whether a patent settlement agreement involving a so-called ?reverse payment? from a patent holder to an alleged infringer of a pharmaceutical patent ?can sometimes unreasonably diminish competition in violation of the antitrust laws.? Edlin, Hemphill, Hovenkamp, and Shapiro (2013) propose a method of evaluating the competitive effects of reverse payment settlement agreements that compares the magnitude of the reverse payment to the sum of the patent holder?s prospective litigation costs and the value of services provided by the alleged infringer to the patent holder. This paper shows that the method proposed by Edlin et al. holds only under limited conditions. This paper also identifies conditions where a reverse payment in excess of litigation costs may lead to earlier generic entry and would be procompetitive. In addition to avoided litigation costs, relevant factors in evaluating patent settlements involving a reverse payment may include inter alia the risk-tolerance of the parties, the level of the drug?s sales, the parties? expectations and information asymmetries related to future competition for the drug, the parties? subjective views of the likely outcome of the litigation, the parties' differences in time-values of money, the applicability of Hatch-Waxman first-filer exclusivity, the relative size of the alleged net reverse payment, and the extent of the alleged delay and associated diminution of competition.

New: Activating Actavis with a More Complete Model
Date Posted:Fri, 31 Jan 2014 07:37:56 -0600
In FTC v. Actavis, Inc. the Supreme Court asked whether a patent settlement agreement involving a so-called “reverse payment” from a patent holder to an alleged infringer of a pharmaceutical patent “can sometimes unreasonably diminish competition in violation of the antitrust laws.” Edlin, Hemphill, Hovenkamp, and Shapiro (2013) propose a method of evaluating the competitive effects of reverse payment settlement agreements that compares the magnitude of the reverse payment to the sum of the patent holder’s prospective litigation costs and the value of services provided by the alleged infringer to the patent holder. This paper shows that the method proposed by Edlin et al. holds only under limited conditions. This paper also identifies conditions where a reverse payment in excess of litigation costs may lead to earlier generic entry and would be procompetitive. In addition to avoided litigation costs, relevant factors in evaluating patent settlements involving a reverse payment ...

New: Vertical Integration as a Self-Enforcing Contractual Arrangement
Date Posted:Sun, 10 Jul 2011 06:14:51 -0500
A recent wave of large vertical mergers presents a challenge to established theories of vertical integration. The large mergers that have occurred in the pharmaceutical industry between drug manufacturers and companies that manage drug insurance benefits (such as Merck's acquisition of Medco) and in the entertainment industry between program suppliers and network distributors (such as Disney's acquisition of Capital Cities/ABC) do not seem to fit traditional economic theories of vertical ...

Vertical Integration as a Self-Enforcing Contractual Arrangement
Date Posted:Sun, 10 Jul 2011 00:00:00 -0500
A recent wave of large vertical mergers presents a challenge to established theories of vertical integration. The large mergers that have occurred in the pharmaceutical industry between drug manufacturers and companies that manage drug insurance benefits (such as Merck's acquisition of Medco) and in the entertainment industry between program suppliers and network distributors (such as Disney's acquisition of Capital Cities/ABC) do not seem to fit traditional economic theories of vertical integration. The proximate causes for these mergers are fairly obvious. The entertainment mergers have been motivated by regulatory changes that permit TV networks to own the product they distribute, and the drug industry mergers have been motivated by the demonstrated ability of drug insurance managers to influence the sales share of different patented drugs within a therapeutic category. However, it is not obvious why these changes in the market environment led to vertical integration. To illuminate the economic motivation for these recent vertical mergers, we present an analysis of vertical integration that combines and extends our work on self-enforcing contracts (Klein and Murphy, 1988; Klein, 1996) with earlier work on vertical integration to avoid holdups (Klein et al., 1978). In what follows we first show that competitive, nonfree-riding distributors often face a distorted incentive to supply the promotional services desired by manufacturers. We then explain why the usual contractual

New: The Economics of Copyright 'Fair Use' in a Networked World
Date Posted:Sat, 09 Jul 2011 11:51:14 -0500
The recent success of file-sharing technologies such as Napster has highlighted the economic question of whether copying increases or decreases the market value of copyrighted works. Contrary to Michele Boldrin and David K. Levine (2002), we show that Napster-type services are likely to reduce copyright value. This economic question of the effect of copying on copyright value largely coincides with the legal question of whether copying is “fair use.” The primary legal determinant of “fair use” ...

New: Competition in Two-Sided Markets: The Antitrust Economics of Payment Card Interchange Fees
Date Posted:Sat, 09 Jul 2011 10:48:10 -0500
Standard economics provides a well-understood framework of the competitive determinants of market prices that is now widely accepted for antitrust analysis. In “two-sidedmarkets,” where firms supply products demanded by two interrelated groups of consumers, these competitive forces operate in a somewhat more complex way and understanding the antitrust implications requires extending the standard framework. For example, a newspaper publisher faces demand from both readers and advertisers. The ...

New: Exclusive Dealing Intensifies Competition for Distribution
Date Posted:Sat, 09 Jul 2011 09:15:52 -0500
Manufacturer competition for retail distribution is shown to often include partially exclusive contracts when competitive retailers have the ability to shift sales by loyal customers to a chosen manufacturer. Since each manufacturer knows its sales will increase substantially at the expense of rival brands if selected for partial exclusivity by the retailer, manufacturers will reduce their wholesale prices in the attempt to be selected. Inter-retailer competition will then largely pass the ...

The Economics of Copyright ?Fair Use? in a Networked World
Date Posted:Sat, 09 Jul 2011 06:36:41 -0500
The recent success of file-sharing technologies such as Napster has highlighted the economic question of whether copying increases or decreases the market value of copyrighted works. Contrary to Michele Boldrin and David K. Levine (2002), we show that Napster-type services are likely to reduce copyright value. This economic question of the effect of copying on copyright value largely coincides with the legal question of whether copying is ?fair use.? The primary legal determinant of ?fair use? (or use that does not require authorization by the copyright-holder) is whether the use adversely affects the present or future economic value of the copyrighted work. However, given this legal standard, it is unclear why copyright holders ever disagree with the court regarding ?fair use.? Our analysis shows that there is no inherent conflict between the court and copyright holders with regard to particular uses, but why there may be a conflict with regard to a technology that has both ?fair? and infringing uses.

Competition in Two-Sided Markets: The Antitrust Economics of Payment Card Interchange Fees
Date Posted:Sat, 09 Jul 2011 00:00:00 -0500
Standard economics provides a well-understood framework of the competitive determinants of market prices that is now widely accepted for antitrust analysis. In ?two-sidedmarkets,? where firms supply products demanded by two interrelated groups of consumers, these competitive forces operate in a somewhat more complex way and understanding the antitrust implications requires extending the standard framework. For example, a newspaper publisher faces demand from both readers and advertisers. The publisher must balance demand on the two sides of the market in determining two interrelated sets of prices, taking account of the fact that lowering subscription prices and thereby increasing readership will increase advertising prices. These ?network effects? of increased readership on advertising value are what make the economic analysis unique and the antitrust implications somewhat unfamiliar.

Exclusive Dealing Intensifies Competition for Distribution
Date Posted:Sat, 09 Jul 2011 00:00:00 -0500
Manufacturer competition for retail distribution is shown to often include partially exclusive contracts when competitive retailers have the ability to shift sales by loyal customers to a chosen manufacturer. Since each manufacturer knows its sales will increase substantially at the expense of rival brands if selected for partial exclusivity by the retailer, manufacturers will reduce their wholesale prices in the attempt to be selected. Inter-retailer competition will then largely pass the lower wholesale prices on to consumers in lower retail prices. Retailers can be thought of as acting as agents for their loyal consumers, trading off reduced product variety for price reductions preferred by their consumers as a group. The economic analysis provides a procompetitive justification for restricted distribution arrangements in the supermarket industry that have been the subject of antitrust litigation, and can be used to explain restricted distribution arrangements in the economy more generally.

New: Explaining the Worldwide Boom in Higher Education of Women
Date Posted:Thu, 23 Sep 2010 11:20:28 -0500
The last forty years have witnessed a remarkable boom in higher education around the world. Importantly, the boom in higher education has been concentrated among women, such that today in most higher-income countries, and many lower-income countries, more women than men attend and complete tertiary education. We present a model that explains the increase in higher education, particularly among women, in terms of a market for college graduates in which the supply of college graduates is ...

Explaining the Worldwide Boom in Higher Education of Women
Date Posted:Thu, 23 Sep 2010 00:00:00 -0500
The last forty years have witnessed a remarkable boom in higher education around the world. Importantly, the boom in higher education has been concentrated among women, such that today in most higher-income countries, and many lower-income countries, more women than men attend and complete tertiary education. We present a model that explains the increase in higher education, particularly among women, in terms of a market for college graduates in which the supply of college graduates is function of the distribution of the costs and benefits of higher education across individuals. Examining evidence on these costs and benefits, we find no clear evidence that benefits are greater for women than men. Instead, it appears that differences in the total costs of college for women and men - primarily due to differences in the distributions of non-cognitive skills for women and men - explain the overtaking of men by women in higher education.

New: Terminal Care and the Value of Life Near its End
Date Posted:Mon, 01 Feb 2010 10:01:55 -0600
Medical care at the end of life, estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. It seems generally agreed upon that medical resources are being wasted on excessive care for end-of-life treatments that often only prolong minimally an already frail life. However, though many observers have claimed that such spending is often irrational and wasteful, little ...

Terminal Care and the Value of Life Near its End
Date Posted:Mon, 01 Feb 2010 00:00:00 -0600
Medical care at the end of life, estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. It seems generally agreed upon that medical resources are being wasted on excessive care for end-of-life treatments that often only prolong minimally an already frail life. However, though many observers have claimed that such spending is often irrational and wasteful, little explicit and systematic analysis exists on the incentives that determine end of life health care spending. There exists no positive theory that attempts to explain the high degree of end-of life spending and why differences across individuals, populations, or time occur in such spending. This paper attempts to provide the first rational and systematic analysis of the incentives behind end of life care. The main argument we make is that existing theoretical and empirical analysis of the value of life do not apply, and often under-values, the value of life near its end and terminal care. We argue that several factors drive up the value of life near its end including the low opportunity cost of medical spending near ones death, the value of hope including living into new innovations, and potential positive effect of on the value of life from being frail. We calibrate the ex-post value of hope associated with treatments for HIV patients to be as much as 4 times as high as standard per-capit

Terminal Care and the Value of Life Near its End
Date Posted:Mon, 18 Jan 2010 10:13:27 -0600
Medical care at the end of life, estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. However, though many observers have claimed that such spending is often irrational and wasteful, little explicit analysis exists on the incentives that determine end of life health care spending. This paper attempts to provide the first rational and systematic analysis of the incentives behind end of life care. The main argument we make is that existing theoretical and empirical analysis of the value of life do not apply, and often under-values, the value of life near its end and terminal care. We argue that several factors drive up the value of life near its end including the low opportunity cost of medical spending near ones death, the value of hope including living into new innovations, and the potential positive effect of on the value of life from being frail. We calibrate the ex-post value of hope associated with treatments for HIV patients to be as much as four times as high as standard per-capita estimates of treatment effects and as many as two and a half times as high as aggregate values across all cohorts.

Social Status, Education, and Growth
Date Posted:Thu, 19 Mar 2009 14:41:20 -0500
This paper investigates the implications of social rewards on the allocation of talent in society and consequently on the process of economic growth. We consider two sources of heterogeneity among workers: nonwage income and innate ability. A greater emphasis on status may induce the "wrong" individuals, that is, those with low ability and high wealth, to acquire schooling, causing workers with high ability and low wealth to leave the growth-enhancing industries. This crowding-out effect, ...

The False Promise of Social Security Privatization
Date Posted:Thu, 19 Mar 2009 13:52:27 -0500
Social Security is the single largest transfer program in the world. In 1999, Social Security paid $334.4 billion in benefits to retired workers and their families and collected $396.4 billion in taxes. More than 151 million persons worked in jobs covered by Social Security and paid Social Security taxes, while more than 37.9 million received benefits. In 1998 more than 90 percent of elderly households received social security payments, and such payments provided more than half of total income ...

Persuasion in Politics
Date Posted:Thu, 19 Mar 2009 13:39:51 -0500
We present a model of the creation of social networks, such as political parties, trade unions, religious coalitions, or political action committees, through discussion and mutual persuasion among their members. The key idea is that people are influenced by those inside their network, but not by those outside. Once created, networks can be rented out to politicians who seek votes and support for their initiatives and ideas, which may have little to do with network members' core beliefs. ...

Entry, Pricing, and Product Design in an Initially Monopolized Market
Date Posted:Thu, 19 Mar 2009 13:36:55 -0500
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 ...

Cattle Cycles
Date Posted:Thu, 22 May 2008 03:35:27 -0500
U.S. beef cattle stocks are among the most periodic time-series in economics. A theory of cattle cycles is constructed, based upon rational breeding stock inventory decisions in the presence of gestation and maturation delays between production and consumption. The low fertility rates of cows and substantial lags between fertility and consumption decisions cause the demographic structure of the herd to respond cyclically to exogenous shocks in demand for beef and in production costs. Known ...

New: Why Does Human Capital Need a Journal?
Date Posted:Mon, 12 May 2008 08:49:44 -0500
No abstract is available for this item.

Why Does Human Capital Need a Journal?
Date Posted:Mon, 12 May 2008 00:00:00 -0500
No abstract is available for this item.

An Empirical Analysis of Cigarette Addiction
Date Posted:Thu, 03 Apr 2008 09:26:30 -0500
We use a framework suggested by a model of rational addiction to analyze empirically the demand for cigarettes. The data consist of per capita cigarettes sales (in packs) annually by state for the period 1955 through 1985. The empirical results provide support for the implications of a rational addiction model that cross price effects are negative (consumption in different periods are complements), that long-run price responses exceed short-run responses, and that permanent price effects ...

New: The Value of Life Near its End and Terminal Care
Date Posted:Tue, 04 Dec 2007 14:10:20 -0600
Medical care at the end of life, which is often is estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. It seems generally agreed upon that medical resources are being wasted on excessive care for end-of-life treatments that often only prolong minimally an already frail life. However, though many observers have claimed that such spending is often irrational ...

Inequality in Labor Market Outcomes: Contrasting the 1980's and Earlier Decades
Date Posted:Fri, 16 Nov 2007 00:00:00 -0600
The increase in wage inequality during the 1980s was exceptional, but underlying demand and supply conditions showed relatively little contrast compared to previous decades. One possible explanation is that the increased demand for skills during the 1980s was unusually concentrated among the most skilled workers rather than being spread throughout the skill distribution.

New: Inequality in Labor Market Outcomes: Contrasting the 1980's and Earlier Decades
Date Posted:Thu, 15 Nov 2007 23:47:37 -0600
The increase in wage inequality during the 1980s was exceptional, but underlying demand and supply conditions showed relatively little contrast compared to previous decades. One possible explanation is that the increased demand for skills during the 1980s was unusually concentrated among the most skilled workers rather than being spread throughout the skill distribution.

New: Increasing Returns, Durables and Economic Fluctuations
Date Posted:Wed, 03 Oct 2007 01:31:55 -0500
No abstract is available for this paper.

Increasing Returns, Durables and Economic Fluctuations
Date Posted:Wed, 03 Oct 2007 00:00:00 -0500
We describe an economy where a durable good is produced with an increasing returns to scale technology. Equilibria in this economy take the form of business cycles in which consumption fluctuates too much and is too low on average. A 2-sector version of this economy with imperfect credit and immobile labor also exhibits aggregate business cycles, in which outputs and labor inputs in different sectors move together. The model is consistent with a broad range of evidence on economic fluctuations.

REVISION: The Market for Illegal Goods: The Case of Drugs
Date Posted:Sat, 15 Sep 2007 20:11:29 -0500
This paper considers the costs of reducing consumption of goods by making their production illegal and punishing illegal producers. We use illegal drugs as a prominent example. We show that the more inelastic either demand for or supply of goods is, the greater the increase in social cost from further reducing its production by greater enforcement efforts. So, optimal public expenditures on the apprehension and conviction of illegal suppliers depend not only on the difference between the ...

The Value of Life Near its End and Terminal Care
Date Posted:Fri, 24 Aug 2007 00:00:00 -0500
Medical care at the end of life, which is often is estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. It seems generally agreed upon that medical resources are being wasted on excessive care for end-of-life treatments that often only prolong minimally an already frail life. However, though many observers have claimed that such spending is often irrational and wasteful, little explicit and systematic analysis exists on the incentives that determine end of life health care spending. There exists no positive theory that attempts to explain the high degree of end-of life spending and why differences across individuals, populations, or time occur in such spending. This paper attempts to provide the first rational and systematic analysis of the incentives behind end of life care. The main argument we make is that existing estimates of the value of a life year do not apply to the valuation of life at the end of life. We stress the low opportunity cost of medical spending near ones death, the importance of keeping hope alive in a terminal care setting, the larger social value of a life than estimated in private demand settings, as well as the insignificance in quality of life in lowering its value. We derive how an ex-ante perspective in terms of insurance and R&D alters some of these conclusions.

New: Income Distribution, Market Size, and Industrialization
Date Posted:Mon, 11 Jun 2007 05:59:42 -0500
No abstract is available for this paper.

Income Distribution, Market Size, and Industrialization
Date Posted:Mon, 11 Jun 2007 00:00:00 -0500
When world trade is not free and costless, a less developed country can profitably industrialize only if its domestic markets are large enough. In such a country, for increasing returns technologies to break even, sales must be high enough to cover the set-up costs, This paper studies some determinants of the size of the domestic market, and focuses on two conditions conducive to industrialization. First, agriculture or exports must provide the source of autonomous demand for manufactures. Such expansion of autonomous demand usually results from increases in farm productivity or from opening of new export markets. Second, income generated in agriculture or exports must be broadly enough distributed that it materializes as demand for mass-produced domestic goods, and not just for luxuries. We resort to these two determinants of the size of domestic markets to interpret several historical development episodes.

Quality and Trade
Date Posted:Sun, 10 Jun 2007 07:23:13 -0500

New: Building Blocks of Market Clearing Business Cycle Models
Date Posted:Fri, 29 Dec 2006 05:59:02 -0600
We compare "real business cycle" and increasing returns models of economic fluctuations. In these models, business cycles are driven by productivity changes resulting either from technology shocks or from crucial building blocks that give both types of models hope of fitting the data. These building blocks include durability of goods, specialized labor, imperfect credit and elastic labor supply. We also present new evidence on comovernent of both outputs sand labor inputs across sectors and on ...

Building Blocks of Market Clearing Business Cycle Models
Date Posted:Fri, 29 Dec 2006 00:00:00 -0600
We compare "real business cycle" and increasing returns models of economic fluctuations. In these models, business cycles are driven by productivity changes resulting either from technology shocks or from crucial building blocks that give both types of models hope of fitting the data. These building blocks include durability of goods, specialized labor, imperfect credit and elastic labor supply. We also present new evidence on co-movement of both outputs sand labor inputs across sectors and on the increasing returns model is easier to reconcile with the data than the real business cycle model.

The Value of Health and Longevity
Date Posted:Wed, 01 Nov 2006 00:00:00 -0600
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 trillion per year to national wealth, equal to about half of GDP. Potential gains from future health improvements are also large; for example, a 1 percent reduction in cancer mortality would be worth $500 billion.

New: The Value of Health and Longevity
Date Posted:Tue, 31 Oct 2006 21:57:45 -0600
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 ...

Quality and Trade
Date Posted:Thu, 25 May 2006 00:00:00 -0500
We present a model of trade in which similar countries trade more with each other than very different countries. The reason is that high human capital countries have a comparative advantage at producing high quality goods, but are also rich enough to want to consume high quality. As a result, countries choose trading partners at a similar level of development, who produce similar quality products. The model helps account for the observed trade patterns, and sheds light on international income comparisons. It also helps explain recent concerns of Eastern European countries that they have "nothing to sell" to the West.

War in Iraq Versus Containment
Date Posted:Sun, 14 May 2006 00:00:00 -0500
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 economic well-being of Iraqis? We address these questions from an ex ante perspective as of early 2003.According to our analysis, pre-invasion views about the likely course of the Iraq intervention imply present value costs for the United States in the range of $100 to $870 billion. Our estimated present value cost for the containment policy is nearly $300 billion and ranges upward to $700 billion when we account for several risks stressed by national security analysts. Our analysis also indicates that war and forcible regime change will yield large improvements in the economic well-being of most Iraqis relative to their prospects under the containment policy, and that the Iraqi death toll would likely be greater under containment.

New: War in Iraq versus Containment
Date Posted:Sat, 13 May 2006 19:26:21 -0500
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 ...

REVISION: The Market for Illegal Goods: The Case of Drugs
Date Posted:Tue, 07 Feb 2006 10:10:57 -0600
This paper considers the costs of reducing consumption of a good by making its production illegal and punishing apprehended illegal producers. We use illegal drugs as a prominent example. We show that the more inelastic either demand for or supply of a good is, the greater the increase in social cost from further reducing its production by greater enforcement efforts. So optimal public expenditures on apprehension and conviction of illegal suppliers depend not only on the difference between ...

The Market for Illegal Goods: The Case of Drugs
Date Posted:Tue, 07 Feb 2006 00:00:00 -0600
This paper considers the costs of reducing consumption of goods by making their production illegal and punishing illegal producers. We use illegal drugs as a prominent example. We show that the more inelastic either demand for or supply of goods is, the greater the increase in social cost from further reducing its production by greater enforcement efforts. So, optimal public expenditures on the apprehension and conviction of illegal suppliers depend not only on the difference between the social and private values of consumption, but also on this elasticity. When demand and supply are no so elastic, it does not pay to enforce any prohibition unless the social value is negative. We also show that a monetary tax could cause a greater reduction in output and increase in price than optimal enforcement against the same goods if it were illegal, even though some producers may go underground to avoid a monetary tax. When enforcement is costly, excise taxes and quantity restrictions are not equivalent.

The Value of Health and Longevity
Date Posted:Wed, 06 Jul 2005 14:07:28 -0500
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 against various major categories of disease. The historical gains from increased longevity have been enormous. Over the 20th century, cumulative gains in life expectancy were worth over $1.2 million per person for both men and women. Between 1970 and 2000 increased longevity added about $3.2 trillion per year to national wealth, an uncounted value equal to about half of average annual GDP over the period. Reduced mortality from heart disease alone has increased the value of life by about $1.5 trillion per year since 1970. The potential gains from future innovations in health care are also extremely large. Even a modest 1 percent reduction in cancer mortality would be worth nearly $500 billion.

The Value of Health and Longevity
Date Posted:Wed, 06 Jul 2005 05:07:28 -0500
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 ...

Measuring the Impact of Crack Cocaine
Date Posted:Fri, 10 Jun 2005 10:47:13 -0500
A wide range of social indicators turned sharply negative for Blacks in the late 1980s and began to rebound roughly a decade later. We explore whether the rise and fall of crack cocaine can explain these patterns. Absent a direct measure of crack cocaine's prevalence, we construct an index based on a range of indirect proxies (cocaine arrests, cocaine-related emergency room visits, cocaine-induced drug deaths, crack mentions in newspapers, and DEA drug busts). The crack index we construct reproduces many of the spatial and temporal patterns described in ethnographic and popular accounts of the crack epidemic. We find that our measure of crack can explain much of the rise in Black youth homicides, as well as more moderate increases in a wide range of adverse birth outcomes for Blacks in the 1980s. Although our crack index remains high through the 1990s, the deleterious social impact of crack fades. One interpretation of this result is that changes over time in behavior, crack markets, and the crack using population mitigated the damaging impacts of crack. Our analysis suggests that the greatest social costs of crack have been associated with the prohibition-related violence, rather than drug use per se.

Measuring the Impact of Crack Cocaine
Date Posted:Fri, 10 Jun 2005 01:47:13 -0500
A wide range of social indicators turned sharply negative for Blacks in the late 1980s and began to rebound roughly a decade later. We explore whether the rise and fall of crack cocaine can explain these patterns. Absent a direct measure of crack cocaine's prevalence, we construct an index based on a range of indirect proxies (cocaine arrests, cocaine-related emergency room visits, cocaine-induced drug deaths, crack mentions in newspapers, and DEA drug busts). The crack index we construct ...

The Equilibrium Distribution of Income and the Market for Status
Date Posted:Tue, 29 Mar 2005 03:51:57 -0600
This paper explores the implications for risk-taking behavior and the equilibrium distribution of income of assuming that the desire for status positions is a powerful motive and that it raises the marginal utility of consumption. In contrast to previous analyses, we consider the case in which status positions are sold in a hedonic market. We show that such a complete hedonic market in status positions can be perfectly replicated by a simpler arrangement with a "status good" and a social norm ...

The Equilibrium Distribution of Income and the Market for Status
Date Posted:Tue, 29 Mar 2005 00:00:00 -0600
This paper explores the implications for risk-taking behavior and the equilibrium distribution of income of assuming that the desire for status positions is a powerful motive and that it raises the marginal utility of consumption. In contrast to previous analyses, we consider the case in which status positions are sold in a hedonic market. We show that such a complete hedonic market in status positions can be perfectly replicated by a simpler arrangement with a "status good" and a social norm that assigns higher status to those that consume more of this good. The main result is that for a wide range of initial conditions the equilibrium distributions of income, status, and consumption are the same, that this allocation requires inequality of income and consumption, and that this allocation coincides with the optimum of a utilitarian planner.

The Economic Theory of Illegal Goods: The Case of Drugs
Date Posted:Mon, 20 Dec 2004 21:36:03 -0600
This paper concentrates on both the positive and normative effects of punishments that enforce laws to make production and consumption of particular goods illegal, with illegal drugs as the main example. Optimal public expenditures on apprehension and conviction of illegal suppliers obviously depend on the extent of the difference between the social and private value of consumption of illegal goods, but they also depend crucially on the elasticity of demand for these goods. In particular, when demand is inelastic, it does not pay to enforce any prohibition unless the social value is negative and not merely less than the private value. We also compare outputs and prices when a good is legal and taxed with outputs and prices when the good is illegal. We show that a monetary tax on a legal good could cause a greater reduction in output and increase in price than would optimal enforcement, even recognizing that producers may want to go underground to try to avoid a monetary tax. This means that fighting a war on drugs by legalizing drug use and taxing consumption may be more effective than continuing to prohibit the legal use of drugs.

The Economic Theory of Illegal Goods: The Case of Drugs
Date Posted:Mon, 20 Dec 2004 11:39:12 -0600
This paper concentrates on both the positive and normative effects of punishments that enforce laws to make production and consumption of particular goods illegal, with illegal drugs as the main example. Optimal public expenditures on apprehension and conviction of illegal suppliers obviously depend on the extent of the difference between the social and private value of consumption of illegal goods, but they also depend crucially on the elasticity of demand for these goods. In particular, when ...

The Allocation of Talent: Implications for Growth
Date Posted:Mon, 05 Jul 2004 11:03:02 -0500
A country's most talented people typically organize production by others, so they can spread their ability advantage over a larger scale. When they start firms, they innovate and foster growth, but when they become rent seekers, they only redistribute wealth and reduce growth. Occupational choice depends on returns to ability and to scale in each sector, on market size, and on compensation contracts. In most countries, rent seeking rewards talent more than entrepreneurship does, leading to stagnation. Our evidence shows that countries with a higher proportion of engineering college majors grow faster; whereas countries with a higher proportion of law concentrators grow slower.

The Allocation of Talent: Implications for Growth
Date Posted:Mon, 05 Jul 2004 02:03:02 -0500
A country's most talented people typically organize production by others, so they can spread their ability advantage over a larger scale. When they start firms, they innovate and foster growth, but when they become rent seekers, they only redistribute wealth and reduce growth. Occupational choice depends on returns to ability and to scale in each sector, on market size, and on compensation contracts. In most countries, rent seeking rewards talent more than entrepreneurship does, leading to ...

Industrialization and the Big Push
Date Posted:Fri, 28 May 2004 11:25:30 -0500
This paper explores Rosenstein-Rodman's (1943) idea that simultaneous industrialization of many sectors of the economy can be profitable for all of them, even when no sector can break even industrializing alone. We analyze this ides in the context of an imperfectly competitive economy with aggregate demand spillovers, and interpret the big push into industrialization as a move from a bad to a good equilibrium. We show that for two equilibria to exist, it must be the case that an industrializing firm raises the demand for products of other sectors through channels other than the contribution of its own profits to demand. For example, a firm paying high factory wages raises demand in other manufacturing sectors even if it loses money. In a similar vein, a firm investing today in order to produce at low cost tomorrow shifts income and hence demand for other goods into the future and so makes it more attractive for other firms also to invest today. Finally, an investing firm can benefit firms in other sectors if it uses a railroad or other shared infrastructure, and hence helps to defray the fixed cost of building the railroad. All these transmission mechanisms that help generate the big push seem to be of some relevance for less developed countries.

Industrialization and the Big Push
Date Posted:Fri, 28 May 2004 02:25:30 -0500
No abstract is available for this paper.

Human Capital, Fertility, and Economic Growth
Date Posted:Wed, 26 May 2004 15:04:53 -0500
Our model of growth departs from both the Malthusian and neoclassical approaches by including investments in human capital. We assume, crucially, that rates of return on human capital investments rise, rather than, decline, as the stock of human capital increases, until the stock becomes large. This arises because the education sector uses human capital note intensively than either the capital producing sector of the goods producing sector. This produces multiple steady scares: an undeveloped steady stare with little human capital, low rates of return on human capital investments and high fertility, and a developed steady stats with higher rates of return a large, and, perhaps, growing stock of human capital and low fertility. Multiple steady states mean that history and luck are critical determinants of a country's growth experience.

Human Capital, Fertility, and Economic Growth
Date Posted:Wed, 26 May 2004 06:04:53 -0500
No abstract is available for this paper.

Persuasion in Politics
Date Posted:Tue, 03 Feb 2004 00:07:34 -0600
We present a model of the creation of social networks, such as political parties, trade unions, religious coalitions, or political action committees, through discussion and mutual persuasion among their members. The key idea is that people are influenced by those inside their network, but not by those outside. Once created, networks can be 'rented out' to politicians who seek votes and support for their initiatives and ideas, which may have little to do with network members' core beliefs. In ...

Persuasion in Politics
Date Posted:Sat, 31 Jan 2004 17:14:49 -0600
We present a model of the creation of social networks, such as political parties, trade unions, religious coalitions, or political action committees, through discussion and mutual persuasion among their members. The key idea is that people are influenced by those inside their network, but not by those outside. Once created, networks can be rented out' to politicians who seek votes and support for their initiatives and ideas, which may have little to do with network members' core beliefs. In this framework, political competition does not lead to convergence of party platforms to the views of the median voter. Rather, parties separate their messages and try to isolate their members to prevent personal influence from those in the opposition.

Entry, Pricing, and Product Design in an Initially Monopolized Market
Date Posted:Mon, 26 Jan 2004 00:00:00 -0600
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 softening of price competition and stronger market segmentation, whereas exclusionary design changes typically raise consumer welfare. Potential, as distinct from actual, entry always benefits consumers.

Persuasion in Politics
Date Posted:Wed, 14 Jan 2004 00:00:00 -0600
We present a model of the creation of social networks, such as political parties, trade unions, religious coalitions, or political action committees, through discussion and mutual persuasion among their members. The key idea is that people are influenced by those inside their network, but not by those outside. Once created, networks can be rented out to politicians who seek votes and support for their initiatives and ideas, which may have little to do with network members' core beliefs. In this framework, political competition does not lead to convergence of party platforms to the views of the median voter. Rather, parties separate their messages and try to isolate their members to prevent personal influence from those in the opposition.

Why Has the Natural Rate of Unemployment Increased Over Time?
Date Posted:Thu, 03 Jan 2002 10:54:57 -0600
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 American labor market led to this apparent secular increase in the natural rate of unemployment. Twenty years later, we revisit Hall's question and turn up some new answers.

Why Has the Natural Rate of Unemployment Increased over Time?
Date Posted:Thu, 03 Jan 2002 00:54:57 -0600
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 ...

Entry, Pricing and Product Design in an Initially Monopolized Market
Date Posted:Thu, 18 Oct 2001 10:26:58 -0500
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 ...

Entry, Pricing and Product Design in an Initially Monopolized Market
Date Posted:Thu, 18 Oct 2001 00:00:00 -0500
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 segmentation. Firms may also forego socially beneficial product improvements in the post-entry equilibrium, because they intensify price competition too much. Multi-product monopoly can lead to better design incentives than the non-cooperative pricing that prevails under competition.

Economic Perspectives on Software Design: PC Operating Systems and Platforms
Date Posted:Tue, 25 Sep 2001 07:57:16 -0500
Improvements in the software that provides hardware management, user interface and platform functions have played a central role in the growth and transformation of the personal computer (PC) industry. Several forces shape the design of these 'operating system' products and propel their evolution over time, including: A. The need to efficiently manage the interacting components of PC systems so as to keep pace with rapid advances in computer technologies the development of applications software.

Economic Perspectives on Software Design: Pc Operating Systems and Platforms
Date Posted:Mon, 06 Aug 2001 00:23:27 -0500
Improvements in the software that provides hardware management, user interface and platform functions have played a central role in the growth and transformation of the personal computer (PC) industry. Several forces shape the design of these 'operating system' products and propel their evolution over time, including: A. The need to efficiently manage the interacting components of PC systems so as to keep pace with rapid advances in computer technologies the development of applications software. B. The need to maintain compatibility with existing applications while preserving the flexibility to incorporate additional functions that support new applications. C. The desire to economize on customer support costs and assign clear responsibility for making the interacting components of the PC work together. D. The desire to bundle multiple software features into a single package so as to more effectively meet the demand for complementary applications or reduce the diversity in product valuations among consumers. We analyze these forces and the factors that determine whether and when new features and functions are included in commercial operating system products. We also explain how this integration and bundling spurs growth in the PC industry and fosters innovation.

The False Promise of Social Security Privatization
Date Posted:Thu, 17 May 2001 00:00:00 -0500
Social Security is the single largest transfer program in the world. In 1999, Social Security paid $334.4 billion in benefits to retired workers and their families and collected $396.4 billion in taxes. More than 151 million persons worked in jobs covered by Social Security and paid Social Security taxes, while more than 37.9 million received benefits. In 1998 more than 90 percent of elderly households received social security payments, and such payments provided more than half of total income for 64 percent of individuals aged 65 and older living alone. According to all observers, Social Security faces a long-term financial problem. Although the Social Security Trust Fund currently boasts a substantial balance and collects far more in taxes than it pays out in benefits, this situation will change over the next several decades as the Baby Boom generation hits retirement age. By 2015 Social Security will be paying more in benefits than it collects in taxes, and by 2039 the Trust Fund will be exhausted, given current benefit formulas and tax rates. Partially in response to this problem, but also to address other concerns about Social Security, a growing chorus of politicians, policy analysts, and economists advocates the full or partial privatization of Social Security. Among politicians, President George W. Bush has made partial privatization the center-piece of his solution to the Social Security crisis. Among economists, Harvard University's Martin Feldstein is the most vi

Changes in Relative Wages, 1963-1987: Supply and Demand Factors
Date Posted:Thu, 21 Dec 2000 17:31:54 -0600
A simple supply and demand framework is used to analyze changes in the U.S. wage structure from 1963 to 1987. Rapid secular growth in the demand for more-educated workers, 'more-skilled' workers, and females appears to be the driving force behind observed changes in the wage structure. Measured changes in the allocation of labor between industries and occupations strongly favored college graduates and females throughout the period. Movements in the college wage premium over this period appear to be strongly related to fluctuations in the rate of growth of the supply of college graduates.

Changes in Relative Wages, 1963-1987: Supply and Demand Factors
Date Posted:Thu, 21 Dec 2000 07:31:54 -0600
A simple supply and demand framework is used to analyze changes in the U.S. wage structure from 1963 to 1987. Rapid secular growth in the demand for more-educated workers, "more-skilled" workers, and females appears to be the driving force behind observed changes in the wage structure. Measured changes in the allocation of labor between industries and occupations strongly favored college graduates and females throughout the period. Movements in the college wage premium over this ...

Cattle Cycles
Date Posted:Fri, 14 Jul 2000 00:00:00 -0500
U.S. beef cattle stocks are among the most periodic time-series in economics. A theory of cattle cycles is constructed, based upon rational breeding stock inventory decisions in the presence of gestation and maturation delays between production and consumption. The low fertility rates of cows and substantial lags between fertility and consumption decisions cause the demographic structure of the herd to respond cyclically to exogenous shocks in demand for beef and in production costs. Known biotechnology of cattle demographics imply sharp numerical benchmarks for the dynamic system that describes the evolution of cattle stock and beef consumption. These compare very closely to structural econometric time-series estimates over the 1875-1990 period and prove that systematic cattle cycles have a wholly rational explanation.

Wage Inequality and Family Labor Supply
Date Posted:Tue, 16 May 2000 02:59:22 -0500
Using data from the March CPS and the 1960 Census, this paper describes earnings and employment changes for married couples in different types of households stratified by the husband's hourly wage. While the declines in male employment and earnings have been greatest for low wage men, employment and earnings gains have been largest for wives of middle and high wage men. These findings cast doubt on the notion that married women have increased their labor supply in the recent decades to ...

Wages, Skills, and Technology in the United States and Canada
Date Posted:Sun, 07 May 2000 11:49:38 -0500
Wages for more- and less-educated workers have followed strikingly different paths in the U.S. and Canada. During the 1980's and 1990's, the ratio of earnings of university graduates to high school graduates increased sharply in the U.S. but fell slightly in Canada. Katz and Murphy (1992) found that for the U.S. a simple supply-demand model fit the pattern of variation in the premium over time. We find that the same model and parameter estimates explain the variation between the U.S. and ...

An Empirical Analysis of Cigarette Addiction
Date Posted:Thu, 27 Apr 2000 00:00:00 -0500
We use a framework suggested by a model of rational addiction to analyze empirically the demand for cigarettes. The data consist of per capita cigarettes sales (in packs) annually by state for the period 1955 through 1985. The empirical results provide support for the implications of a rational addiction model that cross price effects are negative (consumption in different periods are complements), that long-run price responses exceed short-run responses, and that permanent price effects exceed temporary price effects. A 10 percent permanent increase in the price of cigarettes reduces current consumption by 4 percent in the short run and by 7.5 percent in the long run. In contrast, a 10 percent increase in the price for only one period decreases consumption by only 3 percent. In addition, a one period price increase of 10 percent reduces consumption in the previous period by approximately .7 percent and consumption in the subsequent period by 1.5 percent. These estimates illustrate the importance of the intertemporal linkages in cigarette demand implied by rational addictive behavior.

Wages, Skills, and Technology in the United States and Canada
Date Posted:Mon, 21 Dec 1998 21:57:58 -0600
Wages for more- and less-educated workers have followed strikingly different paths in the U.S. and Canada. During the 1980's and 1990's, the ratio of earnings of university graduates to high school graduates increased sharply in the U.S. but fell slightly in Canada. Katz and Murphy (1992) found that for the U.S. a simple supply-demand model fit the pattern of variation in the premium over time. We find that the same model and parameter estimates explain the variation between the U.S. and Canada. In both instances, the relative demand for more-educated labor shifts out at the same, consistent rate. Both over time and between countries, the variation in rate of growth of relative wages can be explained by variation in the relative supply of more-educated workers. Many economists suspect that technological change is causing the steady increases in the relative demand for more-educated labor. If so, these data provide independent evidence on the spatial and temporal variation in the pattern of technological change. Whatever is causing this increased demand for skill, the evidence from Canada suggest that increases in educational attainment and skills can reduce the rate at which relative wages diverge.

Social Status, Education, and Growth
Date Posted:Sat, 27 Jun 1998 00:00:00 -0500
This paper investigates the implications of social rewards on the allocation of talent in society and consequently on the process of economic growth. We consider two sources of heterogeneity among workers: nonwage income and innate ability. A greater emphasis on status may induce the "wrong" individuals, that is, those with low ability and high wealth, to acquire schooling, causing workers with high ability and low wealth to leave the growth-enhancing industries. This crowding-out effect, taken alone, discourages growth. Growth may be enhanced by a more egalitarian distribution of wealth, which reduces the demand for status.

Wage Inequality and Family Labor Supply
Date Posted:Thu, 25 Jun 1998 11:49:07 -0500
Using data from the March CPS and the 1960 Census, this paper describes earnings and employment changes for married couples in different types of households stratified by the husband's hourly wage. While the declines in male employment and earnings have been greatest for low wage men, employment and earnings gains have been largest for wives of middle and high wage men. These findings cast doubt on the notion that married women have increased their labor supply in the recent decades to compensate for the disappointing earnings growth of their husbands. We conclude that own wage effects dominate cross effects between husband and wife in accounting for changes in male and female employment.