Sorting, Education and Inequality

This paper examines the education literature through the lens of sorting. It argues that how individuals sort across neighborhoods, schools and households (spouses), can have important consequences for the acquisition of human capital and inequality. It discusses the implications of different education finance systems for sorting and analyzes the efficiency and welfare properties of these in static and dynamic frameworks.

Tariffs in an Economy with Incomplete Markets and Unemployment

This paper examines the optimal labor contract in a small open economy with incomplete markets under international price uncertainty. The effect on employment, wages, and profits of different realizations of the state of nature is studied and agents' preferences concerning the implementation of a tariff are determined. The implicit contract equilibrium is shown to be constrained Pareto optimal; unanticipated tariff policy cannot be Pareto improving over free trade.

Bank Size, Reputation, and Debt Renegotiation

This paper examines the effect that the coexistence of small and large banks, with different interests in the international market, has on the debt renegotiation process. Making use of a reputational model, we argue that the presence of small banks implies that debtor countries have a harder tine obtaining new money than what they would have absent the small banks.

Culture: an empirical investigation of beliefs, work, and fertility

We study the effect of culture on important economic outcomes by using the 1970 census to examine the work and fertility behavior of women born in the U.S. but whose parents were born elsewhere. We use past female labor force participation and total fertility rates from the country of ancestry as our cultural proxies. These variables should capture, in addition to past economic and institutional conditions, the beliefs commonly held about the role of women in society (i.e., culture). Given the different time and place, only the beliefs embodied in the cultural proxies should be potentially relevant. We show that these cultural proxies have positive and significant explanatory power for individual work and fertility outcomes, even after controlling for possible indirect effects of culture. We examine alternative hypotheses for these positive correlations and show that neither unobserved human capital nor networks are likely to be responsible.Immigrants ; Women - Employment

Human Capital Accumulation and Income Distribution

The non-existence of credit markets implies that initial income is a determinant of who actually obtains an education. We consider the outcome of a process in which income is taxed to provide subsidies for education. and taxes are chosen by majority voting. We characterize the outcome as a function of both the level and the distribution of income in the economy. In particular we derive conditions under which middle income individuals ally themselves with upper income individuals at the expense of lower income individuals, and vice versa. The analysis determines the relationship between human capital accumulation and distribution of income.

Education Finance Reform and Investment in Human Capital: Lessons from California

This paper examines the effect of different education financing systems on the level and distribution of resources devoted to public education. We focus on California, which in the 1970's moved from a system of mixed local and state financing to one of effectively pure state finance and subsequently saw its funding of public education fall between ten and fifteen percent relative to the rest of the US. We show that a simple political economy model of public finance can account for the bulk of this drop. We find that while the distribution of spending became more equal, this was mainly at the cost of a large reduction in spending in the wealthier communities with little increase for the poorer districts. Our model implies that there is no simple trade-off between equity and resources; we show that if California had moved to the opposite extreme and abolished state aid altogether, funding for public education would also have dropped by almost ten percent.

Debt concentration and secondary market prices

Using a model that distinguishes between large money center banks and smaller regional banks, this paper shows that the percentage of a country's debt held by the large banks affects the secondary market price of that country's debt: the higher the concentration of the debt, the higher the secondary market price. It also shows that if debt is freely traded in the secondary market, the entire stock of debt will not eventually end up being owned by the large banks. The authors'empirical analysis incorporates several potential determinants of secondary market prices: variables associated with a country's economic performance, variables that can be associated with the creditor country's regulatory structure, and the concentration of debt in the hands of the largest U.S. banks.Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,Financial Crisis Management&Restructuring,Environmental Economics&Policies

Sovereign Debt

We review the literature on sovereign debt. We organize our survey around three central questions: (1) Why do sovereign debtors ever repay their debts? (2) What burdens, in the form of distortions and inefficiencies, does sovereign debt impose? and (3) How might debt be restructured to reduce these burdens? In grappling with the first question the literature has pointed to, and argued about, the roles of reputation, punishments, rewards and renegotiation. In addressing the second the literature has asked whether sovereign debtors tend to borrow too much or too little, and how debt can distort the domestic economy. Answers to the third question include measures by creditors, by debtors, and by public institutions to reduce debt burdens.

Culture: An Empirical Investigation of Beliefs, Work, and Fertility

We study the effect of culture on important economic outcomes by using the 1970 Census to examine the work and fertility behavior of women 30-40 years old, born in the U.S., but whose parents were born elsewhere. We use past female labor force participation and total fertility rates from the country of ancestry as our cultural proxies. These variables should capture, in addition to past economic and institutional conditions, the beliefs commonly held about the role of women in society, i.e. culture. Given the different time and place, only the beliefs embodied in the cultural proxies should be potentially relevant to women's behavior in the US in 1970. We show that these cultural proxies have positive and significant explanatory power for individual work and fertility outcomes, even after controlling for possible indirect effects of culture (e.g., education and spousal characteristics). We examine alternative hypotheses for these positive correlations and show that neither unobserved human capital nor networks are likely to be responsible. We also show that the effect of these cultural proxies is amplified the greater is the tendency for ethnic groups to cluster in the same neighborhoods.

Sorting and Long-Run Inequality

Many social commentators have raised concerns over the possibility that increased sorting in a society can lead to greater inequality. To investigate this we construct a dynamic model of intergenerational education acquisition, fertility, and marital sorting and parameterize the steady state to match several basic empirical findings. Contrary to Kremer's (1997) finding of a basically insignificant effect of marital sorting on inequality, we find that increased marital sorting will significantly increase income inequality. Three factors are central to our findings: a negative correlation between fertility and education, a decreasing marginal effect of parental education on children's years of education, and wages that are sensitive to the relative supply of skilled workers.