Microeconomic Inventory Behavior and Aggregate Inventory Dynamics

The slow adjustment of inventory stocks to changes in sales has been a puzzle for the inventory literature since at least Auerbach and Feldstein (1976). Recent evidence suggests that estimated firm-level adjustment speeds of inventory stocks are significantly higher than estimates based on aggregate data. This paper investigates the circumstances under which such bias occurs using an industry equilibrium model where, consistently with empirical evidence, some firms smooth production while others bunch it. The model can account for the significant downward bias documented empirically when a subset of firms displays countercyclical mark-up movements.

Immigration and Spending on Public Education: California, 1970-2000

The evolution of education spending in California has received plenty of attention by both academics and practitioners after this state's education finance reform of the 1970's. The impact on public education spending of the demographic trends associated with immigration has not been thoroughly analyzed, instead. This paper quantifies the contribution of immigration to the relative decline in elementary and secondary public education spending per student in California in the period 1970 to 2000. A simple quantitative model of school choice and voting over public education is used to perform the counterfactual experiment of interest. The model allows for household heterogeneity in income, number of school-age children, citizenship and immigration status, and preference for education. The results indicate that immigration played a quantitatively important role in accounting for the relative decline in education spending in California, especially after 1990. In the year 2000, the model predicts that education spending per student in California would have been 24 percent higher than in reality if U.S. immigration had been restricted to its 1970 level.

Shareholders Unanimity With Incomplete Markets

Macroeconomic models with heterogeneous agents and incomplete markets (e.g. Krusell and Smith, 1998) usually assume that consumers, rather than firms, own and accumulate physical capital. This assumption, while convenient, is without loss of generality only if the asset market is complete. When financial markets are incomplete, shareholders will in general disagree on the optimal level of investment to be undertaken by the firm. This paper derives conditions under which shareholders unanimity obtains in equilibrium despite the incompleteness of the asset market. In the general equilibrium economy analyzed here consumers face idiosyncratic labor income risk and trade firms' shares in the stock market. A firm's shareholders decide how much of its earnings to invest in physical capital and how much to distribute as dividends. The return on a firm's capital investment is affected by an aggregate productivity shock. The paper contains two main results. First, if the production function exhibits constant returns to scale and short-sales constraints are not binding, then in a competitive equilibrium a firm's shareholders will unanimously agree on the optimal level of investment. Thus, the allocation of resources in this economy is the same as in an economy where consumers accumulate physical capital directly. Second, when short-sales constraints are binding, instead, the unanimity result breaks down. In this case, constrained shareholders prefer a higher level of investment than unconstrained ones.

Capital Ownership Under Incomplete Markets: Does it Matter?

In the macroeconomic literature, the implications of a context with household heterogeneity and incomplete financial markets have been mostly studied under the assumption that households own the physical capital and undertake the intertemporal investment decision. Further, firms rent capital and labor from the households to maximize period profits. The present paper provides the conditions under which this assumption is still irrelevant when markets are incomplete. It shows that, if firms own the physical capital and undertake the investment decision to maximize their asset value, in the sense that they discount future cash flows with positive state price processes that are consistent with security prices, the equilibrium allocations are the same as in the standard setting with static firms. On the other hand, the firm valuation of future cash flows only coincides with the valuation of the unconstrained shareholders. Given this, value maximization may still lead to shareholder disagreement in the presence of effectively binding portfolio restrictions.

On the Political Economy of Sequential Reforms

This paper proposes an explanation for why efficient reforms are not carried out when losers have the power to block their implementation, even though compensating them is feasible. We construct a signaling model with two-sided incomplete information in which a government faces the task of sequentially implementing two reforms by bargaining with interest groups. The organization of interest groups is endogenous. Compensations are distortionary and government types differ in the concern about distortions. We show that, when compensations are allowed to be informative about the government’s type, there is a bias against the payment of compensations and the implementation of reforms. This is because paying high compensations today provides incentives for some interest groups to organize and oppose subsequent reforms with the only purpose of receiving a transfer. By paying lower compensations, governments attempt to prevent such interest groups from organizing. However, this comes at the cost of reforms being blocked by interest groups with relatively high losses.Cet article tente d'expliquer pourquoi les réformes efficaces ne sont pas effectuées quand les gens qui en sont lésés ont le pouvoir de les bloquer, et ce, même quand des schémas de compensation sont possibles. Nous proposons un modèle de \"signaling\" avec information incomplète bilatérale dans lequel le gouvernement a besoin d'effectuer deux réformes de façon séquentielle en négociant avec des groupes d'intérêt. La formation des groupes d'intérêt est endogène, les compensations sont distorsionnaires et les types de gouvernement se soucient différemment des distorsions. Nous montrons que, lorsque les compensations sont informatives à propos du type de gouvernement, il y a un biais contre le paiement de compensations et la réalisation des réformes. Ceci est dû au fait que le paiement de compensations élevées aujourd'hui donne des incitations à certains groupes d'intérêt de s'organiser et de bloquer la réalisation de réformes subséquentes, avec le seul but d'obtenir des transferts. En payant des compensations plus basses, le gouvernement tente d'éviter l'organisation de ce genre de groupes d'intérêt. Cependant, ceci implique aussi que certaines réformes soient bloquées par des groupes d'intérêt ayant des pertes relativement élevées

The Effect of Household Appliances on Female Labor Force Participation: Evidence from Micro Data

In this paper we estimate the effect of household appliance ownership on the labor force participation rate of married women using micro-level data from the 1960 and 1970 U.S. Censuses. In order to identify the causal effect of home appliance ownership on married women's labor force participation rates, our empirical strategy exploits both time-series and cross-sectional variation in these two variables. To control for endogeneity, we instrument a married woman's ownership of an appliance by the average ownership rate for that appliance among single women living in the same U.S. state. Single women's labor force participation rates did not increase between 1960 and 1970. We find that the diffusion of home appliances accounts for about one-third of the observed increase in married women's labor force participation rates during the 1960's.

Why Have Aggregate Skilled Hours Become So Cyclical Since the Mid-1980's?

This paper documents and discusses a dramatic change in the cyclical behavior of aggregate hours worked by individuals with a college degree (skilled workers) since the mid-1980’s. Using the CPS outgoing rotation data set for the period 1979:1-2003:4, we find that the volatility of aggregate skilled hours relative to the volatility of GDP has nearly tripled since 1984. In contrast, the cyclical properties of unskilled hours have remained essentially unchanged. We evaluate the extent to which a simple supply/demand model for skilled and unskilled labor with capital-skill complementarity in production can help explain this stylized fact. Within this framework, we identify three effects which would lead to an increase in the relative volatility of skilled hours: (i) a reduction in the degree of capital-skill complementarity, (ii) a reduction in the absolute volatility of GDP (and unskilled hours), and (iii) an increase in the level of capital equipment relative to skilled labor. We provide empirical evidence in support of each of these effects. Our conclusion is that these three mechanisms can jointly explain about sixty percent of the observed increase in the relative volatility of skilled labor. The reduction in the degree of capital-skill complementarity contributes the most to this result

Factor Price Equalization in Heckscher-Ohlin Model

This paper investigates the likelihood of factor-price equalization under the simple assumptions of Heckscher-Ohlin Theory. Factor-price equalization is also directly related to whether countries specialize or not in the global market. A full-equilibrium in the world requires not only the equilibrium in the production side of the economy, but also the supply-demand equality in the world. However, once we obtain an equilibrium in the production side of the economy, it is always possible to define demand in a way to get supply-demand equality at any production side equilibrium amounts. Therefore, it is not possible to talk about factor-price equalization without specifying demand in the economy. Using L-P diagrams, the paper demonstrates how both factor-price equalization and non-equalization cases are possible when we look at only the production side of the economy. It is also demonstrated that the equilibrium possibilities will be much larger for factor-price equalization case if the number of commodities is more than the number of factors of production. However, the larger possibilities do not refer to different real equilibria, but only to indeterminacy in production. When demand is introduced in the economy and supply-demand equality constraints are respected, we see that factor-prices might or might not be equalized depending on factor endowments, production functions and demand. The paper demonstrates this by introducing a model with 2 countries, 2 factors of production, 3 goods and CES utility function. Finally, using comparative statistics on this simple model, the conditions under which the likelihood of factor-price equalization increases are determined.