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Volume 15, Number 3, Summer 2001
Articles
The Life-Cycle Model of Consumption and Saving by Martin Browning and Thomas F. Crossley
A central implication of life-cycle models is that agents smooth consumption. We review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime. We find that life-cycle models—particular those which incorporate realistic features of markets and goods—have more empirical successes than failures. We also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents. Finally, we emphasize that the coherence of life-cycle models imposes an important discipline when incorporating new features into models.
A Theory of the Consumption Function, With and Without Liquidity Constraints by Christopher D. Carroll
This paper argues that the modern stochastic consumption model, in which impatient consumers face uninsurable labor income risk, matches Milton Friedman's (1957) original description of the Permanent Income Hypothesis much better than the perfect foresight or certainty equivalent models did. The model can explain the high marginal propensity to consume, the high discount rate on future income, and the important role for precautionary behavior that were all part of Friedman's original framework. The paper also explains the relationship of these questions to the Euler equation literature, and argues that the effects of precautionary saving and liquidity constraints are often virtually indistinguishable.
The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation by George-Marios Angeletos, David Laibson, Andrea Repetto, Jeremy Tobacman and Stephen Weinberg
Laboratory and field studies of time preference find that discount rates are much greater in the short run than in the long run. Hyperbolic discount functions capture this property. This paper presents simulations of the savings and asset allocation choices of households with hyperbolic preferences. The behavior of the hyperbolic households is compared to the behavior of exponential households. The hyperbolic households borrow much more frequently in the revolving credit market. The hyperbolic households exhibit greater consumption income comovement and experience a greater drop in consumption around retirement. The hyperbolic simulations match observed consumption and balance sheet data much better than the exponential simulations.
The WTO as a Mechanism for Securing Market Access Property Rights: Implications for Global Labor and Environmental Issues by Kyle Bagwell and Robert W. Staiger
Can the World Trade Organization (WTO) contribute to the attainment of sound labor and environmental policies? An answer requires an understanding of WTO rules. We argue that the purpose of WTO rules is to create a negotiating forum where governments can exchange secure market access commitments. From this perspective, we argue that supporters of sound trade, labor and environmental policies can benefit from a well-functioning WTO, because facilitating trade liberalization and preventing race-to-the-bottom/regulatory-chill problems go hand in hand, and each is accomplished by maintaining secure property rights over negotiated market access commitments.
Labor Standards: Where Do They Belong on the International Trade Agenda? by Drusilla K. Brown
During the past decade, universal labor standards have become the focus of intense debate. Advocates argue from humanitarian concerns and the interests of industrialized-country labor, seeking enforcement with WTO sanctions. Opponents regard labor regulation as a matter of national sovereignty, challenge the effectiveness of trade sanctions, and prefer the ILO emphasis on dialogue, monitoring and technical advice. This paper analyzes the labor standards debate, with specific attention to the analytical underpinnings of universal rules; evidence linking weak labor protections in developing countries to industrialized country wages; and the role of labor standards in WTO negotiations.
Bridging the Trade-Environment Divide by Daniel C. Esty
Perceived conflict between trade liberalization and environmental protection can be traced to a number of issues. Some tensions relate to the environmental Kuznets curve and whether economic growth yields environmental benefits. Other concerns arise from efforts to address transboundary externalities and disputes over the role of trade measures as an environmental enforcement tool. Another set of issues centers on the risk of a race-toward-the-bottom regulatory dynamic and the limits of legitimate comparative advantage. This paper argues that, in an ecologically and economically interdependent world, trade and environmental policies are inescapably linked as a matter of descriptive reality and normative necessity.
Wheat From Chaff: Meta-Analysis As Quantitative Literature Review by T.D. Stanley
This paper presents and develops a quantitative method of literature reviewing and evaluating empirical research, meta-regression analysis or MRA. Economics is theory-driven. Yet, we must learn empirically if economics is to advance. MRA offers a more objective statistical method to summarize our empirical knowledge and to explain the wide study-to-study variation in economic research. MRA is used to assess the evidence for Ricardian equivalence, and its findings are contrasted to those of conventional narrative review. Furthermore, MRA establishes a platform from which to distinguish genuine empirical effect from the exploitable specification error that infests applied econometrics.
International Productivity Comparisons Built from the Firm Level by Martin Neil Baily and Robert M. Solow
International productivity comparisons can be built up with micro and macro data. Studies of firms or groups of firms producing similar outputs reveal the deeper causes of differences in productivity across countries. The studies find that such differences often depend on patterns of organization within firms, the motivations of managers and the like. The intensity of domestic and international competition can have a large impact on productivity. The case of retailing illustrates the importance of industry evolution. High productivity retailing formats drive out traditional retailers, unless restrained by land-use restrictions or regulations.
Institutional Economics: Then and Now by Malcolm Rutherford
This article gives a history of American institutionalism, and a brief comparison with the more recent "new" institutional economics. Institutionalism was a significant element in American economics between the Wars, but declined rapidly thereafter. The article outlines the movement's initial appeal, its contributions, and the reasons for its decline. Although the "new" institutionalism has few direct ties to the older tradition, some interesting commonalities are found and discussed. Links to the "new institutionalism" in sociology and political science, and to historical work on other "institutional" traditions are also mentioned
Economic Education in U.S. High Schools by William B. Walstad
The teaching of economics at the high school level is vital for increasing basic economic literacy. This assessment of high school economics in the United States covers seven topics: enrollments in courses; course content; the testing of students; achievement in economics courses; economics instruction in related courses; teacher preparation for economics instruction; and the contributions from organizations and economists. Significant improvements are found in the teaching, content, and testing of high school economics over the past two decades, but more work is needed because a formal course in economics is taken by less than half of high school graduates.
An Interview with William J. Baumol by Alan B. Krueger
History Lessons: The Early Development of Intellectual Property Institutions in the United States by B. Zorina Khan and Kenneth L. Sokoloff
The U.S. was a pioneer in establishing the world's first modern intellectual property system. That system was distinguished by the provision of broad access to, and strict enforcement of, property rights in new inventions, coupled with the requirement of public disclosure, and it was effective at stimulating the growth of a market for technology and technical change more generally. Far from being static, fundamental modifications were introduced over time in response to changing circumstances. That such adjustments so often proved to be constructive owes partly to a private market being a central feature of the system, and partly to the democratic structure of U.S. institutions.
Features
Recommendations for Further Reading
Notes