Maximizing Human Development

The Human Development Index (HDI) is widely used as an aggregate measure of overall human well being. We examine the allocations implied by the maximization of this index, using a standard growth model — an extended version of Mankiw, Romer, andWeil’s (1992) model — and compare these with the allocations implied by the golden rule in that model. We find that maximization of the HDI leads to the overaccumulation of both physical and human capital, relative to the golden rule, and consumption is pushed to minimal levels. We then propose an alternative specification of the HDI, which replaces its income component with a consumption component. Maximization of this modified HDI yields a “human development golden rule” which balances consumption, education and health expenditures, and avoids the more extreme implications of the existing HDI.Economic growth, Human Development Index, Planning

The Fundamental Duality Theorem of Balanced Growth

In this paper we demonstrate that a simple duality relation underlies balanced growth models with non-joint production. Included in this class of models is the standard neoclassical growth model and endogenous growth models that admit balanced growth paths. In all of these models, the optimal transformation frontier and the factor price frontier take precisely the same mathematical formulation. Studying these identical frontiers in the context of the different models provides new insights into the relative structures of these models, the role of savings, and the nature of dynamic efficiency in each.

Would Kitty Genovese have been murdered in Second Life? Researching the "bystander effect" using online technologies

The increasing use of online technologies, including &lsquo;virtual worlds&rsquo; such as Second Life, provides sociology with a transformed context within which to ply creative research approaches to ongoing social issues, such as the &lsquo;bystander effect&rsquo;. While the &lsquo;bystander effect&rsquo; was coined following a real-life incident, the concept has been researched primarily through laboratory-based experiments. The relationship between &lsquo;virtual&rsquo; and &lsquo;real&rsquo; world environments and human behaviours are, however, unclear and warrant careful attention and research.In this paper we outline existing literature on the applicability of computer-simulated activity to real world contexts. We consider the potential of Second Life as a research environment in which &lsquo;virtual&rsquo; and &lsquo;real&rsquo; human responses are potentially more blurred than in real-life or a laboratory setting. We describe preliminary research in which unsolicited Second Life participants faced a situation in which they could have intervened. Our findings suggest the existence of a common perception that formal regulators were close at hand, and that this contributed to the hesitation of some people to personally intervene in the fraught situation. In addition to providing another angle on the &lsquo;bystander effect&rsquo;, this research contributes to our understanding of how new technologies might enable us to conduct social research in creative ways.<br /

Empirical evidence on inflation and unemployment in the long run

We examine the relationship between inflation and unemployment in the long run, using quarterly US data from 1952 to 2010. Using a band-pass filter approach, we find strong evidence that a positive relationship exists, where inflation leads unemployment by some 3 to 3 1/2 years, in cycles that last from 8 to 25 or 50 years. Our statistical approach is atheoretical in nature, but provides evidence in accordance with the predictions of Friedman (1977) and the recent New Monetarist model of Berentsen, Menzio, and Wright (2011): the relationship between inflation and unemployment is positive in the long run.Inflation, Unemployment, Long-Run Phillips Curve

Choosing Longevity with Overlapping Generations

We extend Diamond’s (1965) OLG model to allow agents to choose whether to participate in the second period of life. The valuation of early exit (x) is a key parameter. We characterize competitive equilibria, efficient allocations, and predictions for income and life expectancy over time. We find that, with logarithmic utility, for any value of x, there is a range of initial values of the capital stock for which some agents would prefer to exit in equilibrium. The shape of the transition function and the number of steady state equilibria depend crucially on the value of capital’s share of income.ndogenous longevity, overlapping generations, growth

The Employed, the Unemployed, and the Unemployable: Directed Search with Worker Heterogeneity

We examine the implications of worker heterogeneity on the equilibrium matching process, using a directed search model. Worker abilities are selected from a general distribution, subject to some weak regularity requirements, and the firms direct their job offers to workers. We identify conditions under which some fraction of the workforce will be "unemployable": no firm will approach them even though they offer positive surplus. For large markets we derive a simple closed form expression for the equilibrum matching function. This function has constant returns to scale and two new terms, which are functions of the underlying distribution of worker productivities: the percentage of unemployable workers, and a measure of heterogeneity (?).The equilibrium unemployment rate is increasing in ? and, under certain circumstances, is increasing in the productivity of highly skilled workers, despite endogenous entry. A key empirical prediction of the theory is that ? ? 1. We examine this prediction, using data from several countries.Directed search; worker heterogeneity; unemployment

Residual Wage Disparity and Coordination Unemployment

We ask: how much of the observed wage dispersion, among similar workers, can be explained by a lack of coordination among employers in their hiring practices?To answer this, we construct a directed search model with homogenous workers where firms can create either good or bad jobs, are uncoordinated with their job offers, and where on-the-job search is possible. Workers can exploit ex post opportunities when determining wages. The stationary equilibrium has both productivity dispersion - different wages due to different job qualities, and contract dispersion - different wages due to different market experiences for workers, and is constrained-efficient. Job arrival rates are endogenous and, as found in empirical studies, smaller for on-the-job searchers than for unemployed workers. We calibrate the model to the US economy and compare the implied statistics with those for empirical data. The equilibrium wage distribution is hump shaped, skewed significantly to the right, and, with baseline parameters, generates residual dispersion statistics 75-90% the size of those found empirically. However, the model overestimates the values of job finding rates and underestimates the average duration of unemployment.

The Human Development Index as a Criterion for Optimal Planning

Planning strategies that maximize the Human Development Index (HDI) tend towards minimizing consumption and maximizing non-investment expenditures on education and health. Interestingly, such strategies also tend towards equitable outcomes, even though inequality aversion is not modelled in the HDI. A problematic feature of strategies that maximize the HDI is that the income component in the index only role is to distort the allocation between health and education expenditure. Because the income component does not play its intended role of securing resources for a decent standard of living, we argue that it is better to drop income from the index in considering optimal plans. Alternatively, we consider net income, income net of education and health expenditures, as indicator of capabilities not already reflected in the education and life expectancy components of the index. When net income is used in a modified HDI index, optimal plans yield a balance between allocations for consumption, education, and health. Finally, we calculate our modified indexes for OECD countries and compare them with the HDI.Consumption; Human development index; Income; Inequality; Planning

Monetary Exchange with Multilateral Matching

This paper analyzes monetary exchange in a search model allowing for multilateral matches to be formed, according to a standard urn-ball process. We consider three physical environments: indivisible goods and money, divisible goods and indivisible money, and divisible goods and money. We compare the results with Kiyotaki and Wright (1993), Trejos and Wright (1995), and Lagos and Wright (2005) respectively. We …nd that the multilateral matching setting generates very simple and intuitive equilibrium allocations that are similar to those in the other papers, but which have important di¤erences. In particular, sur- plus maximization can be achieved in this setting, in equilibrium, with a positive money supply. Moreover, with ‡exible prices and directed search, the …rst best allocation can be attained through price posting or through auctions with lotteries, but not through auctions without lotteries. Finally, analysis of the case of divisible goods and money can be performed without the assumption of large families (as in Shi (1997)) or the day and night structure of Lagos and Wright (2005)Matching, Money, Directed Search

The Mortensen Rule and Efficient Coordination Unemployment

We study the implementation of constrained-efficient allocations in labour markets where a basic coordination problem leads to an equilibrium matching function. We argue that these allocations can be achieved in equilibrium if wages are determined by ex post bidding. This holds true even in finite sized markets where the equilibrium matching function has decreasing returns to scale – where the “Hosios rule” does not apply – both with and without heterogeneity. This wage determination mechanism is similar to the one proposed by Mortensen (1982) in a different settingHosios Rule, coordination unemployment, price-posting, auctions, efficiency, directed search