Abstract: This paper uses historicaI U.S. data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation. The evidence presented indicates that intergenerational transfers account for the vast majority of aggregate U .S. capital formation; only a negligible fraction of actual capital accumulation can be traced u, life-cycle or "hump" savings. A major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age-earnings and age-consumption profiles. These profiles are simply too flat to generate substantial lifecycle savings. This paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers. fife-cycle models of savings that emphasize savings for retirement as the dominant form of apical accumulation should give way to models that illuminate the determinants of intergenerational transfers.

Abstract: We investigate the stochastic relation between income and consumption (specifically, consumption of food) within a panel of about 2,000 households. Our major findings are: 1. Consumption responds much more strongly to permanent than to transitory movements of income. 2. The response to transitory income is nonetheless clearly positive. 3. A simple test, independent of our model of consumption, rejects a central implication of the pure life cycle-permanent income hypothesis. The observed covariation of income and consumption is compatible with pure life cycle-permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent. As a general matter, our findings support the view that families respond differently to different sources of income variations. In particular, temporary income tax policies have smaller effects on consumption than do other, more permanent changes in income of the same magnitude.

Abstract: Recent theorizing with business cycle models which incorporate features of the Friedman-Phelps natural rate model along with rational expectations lead to the following policy conclusions Anticipated changes in aggregate demand policy will have already been taken into account in economic agents behavior and will thus evoke no further output or employment response Therefore, deterministic feedback policy rules will have no impact on output fluctuations in the economy These policy implications of what Modigliani has dubbed the Macro Rational Expectations (MRE) hypothesis are of such importance that a wide range of empirical research is needed for its verification or refutation Recent empirical work has tested the "neutrality" implication of the MRE hypothesis that anticipated monetary policy does not affect output or unemployment Although this empirical work has frequently been favorable to the MRE hypothesis, it suffers from several deficiencies that create suspicion about the robustness of the results This paper is an attempt to conduct an econometric investigation of the implications of the MRE hypothesis which does not suffer from these deficiencies The results here strongly reject the neutrality implications of the MRE hypothesis: unanticipated movements in monetary policy are not found to have a larger impact on output and unemployment than anticipated movements This evidence casts doubt on previous evidence that is cited as supporting the view that only unanticipated monetary policy is relevant to the business cycle

Abstract: This paper examines the incentives for using tariffs to extract monopoly rents from imperfectly competitive foreign firms. Using a simple Stackelberg entry deterrence model, the rent-extracting policy is attractive if the foreign firm faces a threat of domestic entry. Despite transportation costs, the Stackelberg leader-follower model can lead to intra-industry trade in the same commodity.

Abstract: The paper lacks an abstract, but argues that an important systematic influence on regional growth and decline is the climate offered at various locations.

Abstract: This paper develops a model of exchange rate determination that extends the Dornbusch-Frankel model to allow for large and sustained changes in real exchange rates. Real exchange rate changes are related to movements in the current account, both through changes in expectations about the long-run equilibrium real exchange rate and through changes in the risk premium. The model is estimated empirically for the dollar's weighted average exchange rate over the flexible rate period of the 1970s. The results indicate that innovations to the current account have been a significant determinant of the exchange rate, predominantly through changes in expectations.

Abstract: W ITH modern economic growth, we observe people reallocating resources in response to changes in economic conditions. How accurately they perceive and efficiently they respond to these changes is attributed to allocative ability (Schultz, 1975). This ability is not restricted to managers of firms. People who supply labor services for hire or who are selfemployed also reallocate their time in response to changes in the value of the work they do. With long-term U.S. economic growth, one major adjustment has been a reallocation of labor between farm and nonfarm labor markets. After 1948, long-term economic forces created prospects of higher incomes in the nonfarm sector. A large proportion of both white and black families quit farming and took nonfarm jobs, causing a massive net exodus of people from farms.' Other farm families have continued to work their farms but have also taken off-farm jobs. Nationally, the percentage of farm operators reporting off-farm work rose from 39% in 1950 to 54% in 1969. Operators working 100 days or more per year off their farms increased from 23% to 40% during the same period (U.S. Department of Commerce, 1973, p. 178). The objective of this paper is to present some econometric evidence of the effect of investments in education and information (agricultural extension) on the off-farm labor supply of farmers.2 The data are county averages per farm for Iowa, North Carolina, and Oklahoma. Important findings are that raising the education level of farmers and increasing the agricultural extension input increase the off-farm labor supply of farmers. This implies that part of the return to education in agriculture arises from its effect on the reallocation of farmers' labor services between farm and nonfarm labor markets. In section I, a labor supply model is developed for household members who face options of having a wage job and a self-employed job. The labor supply decisions are treated as part of a set of joint decisions made by multiple-person farm households on inputs for household consumption and for farm production.3 Section II presents a discussion of the data, the empirical model, and the results from fitting the off-farm labor supply functions. Section III contains further implications, and section IV contains the conclusions.

Abstract: The present paper outlines the similarities in the structure of self-selectivity models and disequilibrium models Both these models fall under the category of switching models—with sample separation known and sample separation unknown Curiously enough the econometric models with self-selectivity are all switching models with sample separation known, whereas the econometric models with disequilibrium are mostly formulated as switching models with unknown sample separation The paper argues that the reasons for this are that not much attention is devoted to the reasons for the existence of disequilibrium and the models are all formulated as "rationing" models It is suggested that many empirical applications of disequilibrium fall in the category of "trading" models and here the sample separation is known and the reasons for the existence of disequilibrium are also clear

Abstract: The paper develops a general stochastic macroeconomic model which can be used to study the international transmission of disturbances under alternative exchange-rate systems Four types of exchange-rate systems are considered: uniform flexible exchange rates, uniform fixed exchange rates, two-tier exchange rates in which the current-account exchange rate is fixed and the capital-account exchange rate is flexible, and two-tier exchange rates with separate, floating rates for current and capital-account transactions It is assumed that expectations are rational, so only the unexpected portion of macro policy alters the level of output In addition, private contracts form the underpinning of the aggregate supply function, and they can be adjusted optimally in response to the country's choice of exchange-rate regime It is shown that when the home country takes all prices as exogenous and wages are optimally indexed, the country is fully insulated from foreign disturbances under the two fixed-rate regimes but not under the two flexible-rate regimes Even so, the fixed-rate regimes are inferior to the flexible-rate regimes in terms of their ability to minimize output variance When the home country is large in the market for its own produced good, these results must be modified The analysis makes two general points First, one cannot assume stability of structure when assessing the consequences of alternative exchange-rate regimes For example, the slope of the aggregate supply curve and the rationally-formed expectations in the asset markets can respond dramatically to the government's choice of exchange-rate regime Second, exchange-rate regimes that provide full insulation from foreign disturbances may nevertheless be inferior to other regimes in terms of their ability to maximize social welfare

Abstract: This paper models the competitive equilibrium wage rate when employment offers vary according to the amount of anticipated unemployment and unemployment risk. The competitive wage reflects a compensating differential which includes a certainty equivalent compensation proportional to the squared expected unemployment rate and a risk compensation proportional to the coefficient of unemployment variation. The factors of proportionality are half the inverse compensated labor supply elasticity and half the relative risk aversion, respectively. we use panel data to construct a model of anticipated unemployment and unemployment variance which depends on personal employment history, industry and economy-wide factors. Compensating wage differentials ranging from less than 1% to more than l4% are estimated for a two-digit industry classification over the years 1970 to 1975.

Abstract: This paper gives a general framework (in the geometric style) for the design of compensators for linear multivariable systems. Basic is the notion of a "( C,A,B )-pair of subspaces." This concept is newly defined here, and we give its simplest application (to the problem of disturbance decoupling by observation feedback). We then formulate a general compensator synthesis principle and show how several well-known synthesis techniques can be derived from it. We also show that "almost all" compensators can be interpreted as observer-based compensators, and discuss the relation between the compensator problem and the stable cover problem.

Abstract: This paper examines the implications of microstructure theory for empirical research on stock price behavior

Abstract: An index of Inequality is constructed which decomposes into two components, corresponding to vertical and "horizontal" equity respectively Horizontal equity Is defined in terms of changes in the ordering of a distribution The proposed index is a function to two inequality aversion parameters One empirical application is for comparison of a pre-tax distribution with a post-tax distribution, and an example of this is given for the distribution of incomes in the UK in 1977 There is a trade-off between "horizontal"and vertical equity, and for particular combinations of the inequality aversion parameters the original distribution will be preferred to the final distribution The paper concludes with an application of the proposed index to a model of optimal taxation

Abstract: The paper presents a labor market equilibrium analysis of implicit contract theory. A two-period, single-good model is used to propose consistent notions of labor market equilibrium for long-term employment contracts both when labor is specialized and cannot move in the second period and when there is free mobility without costs. The result that long-term contracts emerge in equilibrium even without mobility costs is novel and contrary to common beliefs. The main features of equilibrium are that (risk-neutral) firms will insure (risk-averse) workers against downside risk, yielding downward rigid wages. Wages are not fully rigid (as in earlier work on contract theory) because workers may quit and wages have to be bid up to retain them. The firm gets its return of the insurance deal by paying less than marginal product in the first period. The resulting equilibrium is second best and lies between productive efficiency and full insurance. Workers gain from long-term contracts in comparison to spot markets; whereas owners may not. In the model with specialized skills there exist transfer payments such that both parties are better off within an equilibrium with long-term contracts.

Abstract: The central problem of the essays in this volume is the problem of theory appraisal in economics. In the history of economic theory we find few widely recognised theoretical achievements and in the history of the methodology of economics we find little agreement concerning the standards by which we should judge a theory as an improvement on its predecessors.

Abstract: Birds of Passage presents an unorthodox analysis of migration ion to urban industrial societies from underdeveloped rual areas. It argues that such migrations are a continuing feature of industrial societies and that they are generated by forces inherent in the nature of industrial economies. It explains why conventional economic theory finds such migrations so difficult to comprehend, and challenges a set of older assumptions that supported the view that these migrations were beneficial to both sending and receiving societies. Professor Piore seriously questions whether migration actually relieves population pressure and rural unemployment, and whether it develops skills necessary for the emergence of an industrial labour force in the home country. Furthermore, he criticizes the notion that in the long run migrant labour complements native labour. On the basis of this critique, he develops an alternative theory of the nature of the migration process.

Abstract: This paper examines empirically the effect of unfunded pension obligations on corporate share prices and discusses the implications of these estimates for national saving, the decline of the stock market in recent years, and the rationality of corporate financial behavior The analysis uses the information on inflation-adjusted income and assets that large firms were required to provide for 1976 and subsequent years The evidence for a sample of nearly 200 manufacturing firms is consistent with the conclusion that share prices fully reflect the value of unfunded pension obligations Since the conventional accounting measure of the unfunded pension liability has a number of problems (which we examine in the paper), it would be more accurate to say that the data are consistent with the conclusion that shareholders accept the conventional measure as the best available information and reduce share prices by a corresponding amount The most important implication of the share price response is that the existence of unfunded private pension liabilities does not necessarily entail a reduction in total private saving Because the pension liability reduces the equity value of the firm, shareholders are given notice of its existence and an incentive to save more themselves For this reason, unfunded private pensions differ fundamentally from the unfunded Social Security pension and the other unfunded federal government civilian and military pensions

Abstract: The social security program will pay benefits of more than $100 billion in 1978. Public transfers on this scale are large enough to have profound effects on the behavior of the U.S. economy. The most important effect, although not the only one, is likely to be the impact of social security on private saving and aggregate capital accumulation. The present paper contributes to the analysis of this issue by providing new evidence on the extent to which the accumulation of wealth by individual households responds to differences in social security benefits.

Abstract: This paper discusses exchange rate rules in their role as macroeconomic instruments Two quite different approaches are pursued The traditional view is that exchange rate flexibility is a substitute for money wage flexibility so that managed money and managed exchange rates yield the necessary instruments for internal and external balance An entirely different perspective is offered by the modern macro-economics of wage contracting and the long run trade-off between the stability of output and the stability of inflation In this context it is shown that exchange rate policies that seek to maintain real exchange rates or competitiveness do stabilize output but do so at the cost of in-creased inflation instability Exchange rate rules such as full purchasing power parity crawling pegs are the analogue of full monetary accommodation of price disturbances

Abstract: A price dispersion equation is tested with data from the German hyper-inflation The equation is derived from a version of Lucas' (1973) and Barro's (1976) partial information-localized market models In this extension, different excess demand elasticities across commodities imply a testable dispersion equation, in which the explanatory variable is the magnitude of the unperceived money growth The testing of this hypothesis requires two preliminary steps First, a price dispersion series is computed using an interesting set of data It consists of monthly average wholesale prices of 68 commodities ranging from foods to metals, for the period of January, 1921 to July, 1923 The next step is the delicate one of measuring unperceived money growth This estimation implies the postulation of an available information set and also a function relating the variables in this set to money creation The function used was based on considerations related to government demand for revenue The model receives support from the empirical analysis although it is evident that unincluded variables have important effects on price dispersion

Abstract: Demographic differences in patterns of employment variation over the business cycle are examined in this paper. Three primary conclusions emerge. First, both participation and unemployment must be considered in any analysis of cyclical changes in the labor market. Second, young people bear a disproportionate share of cyclical employment variation. Third, failure to consider participation has led to undue pessimism about the effect of aggregate demand policy on high unemployment groups. If participation did not surge, reduction in overall unemployment to its 1969 level would reduce the unemployment of almost all demographic groups to very low levels.